Comprehensive Study of the Vietnamese Wine Market

5.2 Vietnam Grape and Wine Production According to the Vietnam Beverages Association, there are approximately 15 wine producers operating in Vietnam with a total annual capacity of approximately 1.5 to two million liters. However, their market share is quite limited in comparison to their foreign rivals who have built up brand awareness and have a good reputation for quality and consistency. Vietnamese wineries such as Da Lat Winery, which makes some of the best locally made wines, can only penetrate the lower market segment with prices ranging from U.S. $2 to U.S. $5. In addition, the shortage of raw materials is another problem that most local producers are facing. So far, the wine producers in Vietnam are mostly confined to a few regions like Lam Dong and Phan Rang provinces, and the grapes do not seem to be of a quality for making premium wines, according to some experts. Recently Da Lat Winery had to import grapes and wine inputs from France to produce better quality wine.10 During the in-country investigation portion of this project, the authors of this study travelled to the agriculture valley located in between the Da Lat and the South China Sea. They had the unique opportunity to walk through a winegrape vineyard where Syrah and Sauvignon Blanc varietals were being grown. Vietnams climate offers tropical winegrape growing; therefore, the vines do not go dormant. This reality means that if a grape grower wants to produce one high-quality crop, he/she must prune the vines at least twice to force vine dormancy. In wine producing areas in India, this form of production is often followed. In Vietnam; however, most vineyards are not forced into dormancy, and therefore produce two to three crops per year. While conversing with the vineyard owners in Vietnam, it was discovered that this specific vineyard produced close to 30 Tons per acre each year. That is 10 Tons per acre with three crops per year. This sort of excessive production does not yield a qualitative product, and is said to drastically reduce the life cycle of the vine. With three crops per year, the vines are said to only produce for approximately seven to eight years. In California and other wine producing countries, without taking into consideration disease and pest variation, it is common for vines to produce for 40 to 60 years, with some vines still in production that reach 60 years plus. From the buyers side of the equation, the authors of this study learned that there is no current incentive to produce winegrapes for quality. The winegrape buyers purchase with quantity in mind. The farmers related that they have a difficult time getting their crop to reach even 16 degrees brix (a measure of the sugar, and subsequent ripeness of the grape). They asked one of the authors how they could improve on that number. The response from the author with viticulture experience was, You have to thin out your crop levels and allow a more moderate crop to ripen. The dilemma is that these farmers were paid for the quantity, not the quality and/or ripeness of their grapes; therefore, it didnt make any economical sense to produce a quality product. Overall, the authors of this study discovered that winegrapes can be grown in Vietnam, but the technical know-how and market structure are underdeveloped. In addition to the vineyards referenced above, Cardinal and Chambourcin grapes are other domestically harvested grape varieties in Vietnam. There is also a high level of fruit wine production from Vietnams local fruits. Currently, joint ventures with British and Australian wine producers are attempting to establish more varieties of internationally accepted winegrape production in Vietnam. U.S. wineries should definitely consider jointventure/partnership opportunities in Vietnam. The agriculture sector and the alcohol companies desire to produce winegrapes and wine; however, they need assistance. Such assistance could be offered while receiving similar support from the Vietnamese partners in accessing local markets and efficient supply/distribution chains.

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2.2.3 Customs Dispute Resolution Mechanism The Vietnamese legal system is highly complex and is driven by overlapping resolutions, ordinances, laws, orders, decrees, decisions, directives, and circulars. With its ascension into the WTO, attempts are being made to coordinate regualations and procedures. Importers and U.S. companies seeking entry into Vietnam are advised by the USDA to contact a locally established law firm for legal assistance. A list of these firms can be found at the U.S. Missions Country Commercial Guide (CCG) from the Department of State and Department of Commerce. 2.3 Import Policy and Regulation As Vietnams legal and regulatory environment is currently undergoing significant change, United States wine exporters are advised to stay in touch with their importers on these issues. 2.3.1 Certificate of Origin The Certificate of Origin must be issued by a relevant body; a designated department of the government of the exporting country such as the Ministry of Trade, Ministry of Finance, Chamber of Commerce, or Ministry of Industry. The C/O submitted to the Customs Office must be an original and must include: Issuance Number of C/O Name and Address of the exporter, the exporting country Name and Address of the importer, the importing country The Trademark and Label; quantity and type of packs; description of goods. Weight Goods Origin Enterprise Requesting the CO Issuance and Date of Request C/O Issuing Organization including name, Date, and Stamp.

In Regards to the C/O Stamp, an official stamp in Vietnam is expected to be a circular stamp that produces a raised seal and is readable by the reviewing official. Failure to meet these requirements may result in the rejection of the document.27 2.3.2 Storage Regulations There are no regulations on the size or weight of imported food containers or regulations on recycling requirements. Packaging materials are imposed on ceramic, and glass, synthetic plastic, and alloy. These regulations apply to impurities in these products and to their testing methods. Details of these requirements are available in USDA Gain Report VM9019. 2.3.3 SPS Standards Sanitary and Phyto-Sanitary inspection is done before Customs Clearance and is performed by the Ministry of Agriculture and Rural Developments Plant Protection Department and the Department of Animal Health (DAH).28 Vietnam established the SPS National Authority in 2007 and is pushing to align its SPS standards with the World Trade Organization and international standards. 2.3.4 Maximum Residue Levels The Ministry of Health defines food additives as substances which are not considered food or the main ingredients of food, and which have little nutritional value, and are added in food in limited amounts, and are harmless. Food additives are used in order to maintain the quality, shape, odor, alkalinity or acidity of food, or, to meet the technological requirements for the production, processing, packaging, transportation and preservation of food. Such contaminants as poisonous micro-fungus, heavy metals, herbal preserving agents, animal

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medicines, etc., are not considered food additives. The list of food additives allowed in food is presented in Decree No. No.3742/2001/QD-BTY. State Control/Testing Agencies (SCA) associated with the Ministry of Health (MOH) and the Ministry of Science and Technology (MOST) who have been appointed to verify imported foods in compliance with food quality and safety regulations: Northern Region National Nutrition Institute (MOH) Technical Center Number 1 (MOST) Nha Trang Pasteur Institute (MOH) Technical Center Number 2 (MOST)

Central Region

Highlands Region Epidemiological and Hygiene Institute (MOH) Southern Region Public Health and Hygiene Institute (MOH) Technical Center Number 3 (MOST)

2.3.5 Wholesale Distribution and Licensing Foreign Participation in commission agents services, wholesale services, retail services, and franchising is limited to joint ventures until January 2009 at which point the restriction will be lifted and 100 percent foreign owned entities will be allowed to operate in this sector. Per the U.S.Vietnam Bilateral Trade Agreement, 100 percent U.S. owned Distribution Services Companies may be established effective December of 2008. Vietnam has not made any commitments on Cross Border Distribution Services which would allow a U.S. company to provide distribution services from abroad.29 2.3.6 Brand and Label Registration The Committee of State for Co-operation and Investment (THIS) is the organization where status must be registered. 2.3.7 Labeling Requirements30 Labels for alcoholic products must contain:31 Quantity Alcohol content Instructions on preservation (for wine)

The Ministry of Trade manages labeling requirements of imported goods. The Ministry of Health requires that each food product have labeling that lists: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Name of the Food Name and Address of the premise where food is made Quantity/Volume Components Main Quality Measures Manufacture date, Expiry Date, and Shelf Life Instruction for Use and Preservation (especially for Wine) Origin of Food Alcohol Content Warning of Safety and Hygiene

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Bulk Containers must also list: 1. 2. 3. Country of Origin Manufacturers name Name of the Packing and Bagging Center

2.4 Intellectual Property Rights Analysis Trademarks and trade names are recognized and protected under the Vietnam Intellectual Property Law that became effective on in July of 2006.32 Additionally, Vietnam has made commitments under TRIPS and is also participant in several multilateral IPR agreements such as the Madrid Agreement Concerning International Registration of Marks. Jurisdiction of IPR Law falls under the Vietnam Customs Office. For Registration for Copyright Protection at the Customs Office, applicants must submit an application for long term copyright protection. Procedure details are available at http://www.customs.gov.vn/ . 3. Trade Policy 3.1 WTO Vietnam became the 150th member of the World Trade Organization in January of 2007. It has committed to reduce tariffs on many consumer-oriented products, beverages, and agricultural goods.33 3.2 Bilateral Trade Agreements 3.2.1 U.S.Vietnam This agreement went into effect in 2001. The main objective of this agreement is to open Vietnamese markets, promote reform and trade, and to eliminate non-tariff barriers to U.S. exports. 3.2.2 VietnamEU The negotiations for the agreement began in March of 2010. 3.2.3 ASEAN Trade Agreements Vietnam is a member of the Association of the Southeast Asian Nations (ASEAN), and is involved or in the process being a signatory in the following Free Trade Areas: ASEANAustralia New Zealand FTA signed in February 2009. ASEANChina FTA currently the countries are in the sixth consultation, discussing the importance of promoting regional peace and success. ASEANIndia FTA member countries met for the seventh consultation in August of 2009 and signed the ASEAN-India Trade in Goods (TIG) agreement. The countries believe this TIG would sustain regional growth and create an open market. ASEANJapan FTA signed an agreement on Comprehensive Economic Partnership in 2008 to help liberalize and facilitate trade. ASEANRepublic of Korea FTA signed in 2005.

FTAs have been established with the EU (2004), Chile (2004), Argentina (2004), Brazil (2004), Singapore (2004), Uruguay (2005), Korea (2005), Japan (2005), Canada (2005), China (2005), Columbia (2005), South Korea (2005), and Iceland (2005).

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ASEAN members have made progress in lowering intra-regional tariffs through the Common Effective Preferential Tariff (CEPT) Scheme for AFTA, more than 99 percent of tariffs have been reduced to between zero and five percent. More information on AFTA is available at http://www.aseansec.org/12021.htm. 4. Rules of Origin Vietnam Rules of Origin as defined by ASEAN must have a regional value content of not less than 40 percent; or a change to subheading 2204 from any other category.34 Wines produced within the Asian Free Trade Area have had import tax rates reduced to five percent as of 2006.

Comprehensive Study of the Vietnamese Wine Market V. Local Wine Importers

Company Allied Domecq Vietnam 621 Pham Van Chi St, Ward 7, District 6 Ho Chi Minh City Ample & Associates, Ltd (BVI) 78 Truc Duong St, An Phu Ward, District 2 Ho Chi Minh City Annam Fine Foods 36/26 Duong D2, Phuong 25, Binh Thanh District Ho Chi Minh City Annam Group 36/26 Duong D2, Phuong 25, Binh Thanh District Ho Chi Minh City, Vietnam Au A Co 290/13E, Nam Ky Khoi Nghia St, District 1 Ho Chi Minh City Brown Forman 20 lo O, Cu Xa Vinh Hoi, Ben Van Don, District 4 Ho Chi Minh City Contact Ms. Agnes Yeo (CEO) Phone/Fax p.848.3854.4067 Email

18

Mr. Youri Korsakoff

p.848.3744.4597 yourikvn@yahoo.com f.848.3512.6401 yourikvn@ample-asia.com

Ms. Nguyen Thi Phuong Ha (Managing Director)

p.848. 3512.6400 ha@annam-finefood.com f.848. 3512.6401

Mr. Simon Briggs p.848.3512. 6400 simon.briggs@annam(General f.848.3512.6401 group.com Manager) Ms. Nguyen Thi Hoang Anh (Director) Mr. Nguyen Thanh Phong (Director) p.848.3848.0838 phuong.nguyen@aua.com.vn f.848.3848.1306

c.84.909.146.364 phongnguyen003@yahoo.com

LES CELLIERS D'ASIE VIETNAM Mr. Sylvain 18 Pho Yen The, Bournigault Ba Dinh, (Country Ha Noi Manager) CMKT Company 238/2 Pasteur, District 3 Ho Chi Minh City Dathaco 18 Ba Vi St, Ward 4, Tan Binh District Ho Chi Minh City Dong A Co 37 Do Quang Dau St, District 1 Ho Chi Minh City Dong Do Joint-Stock Co 99 Pham Viet Chanh St, Ward 19, Binh Thanh District Ho Chi Minh City Fine Wines Joint Stock Company 38 Dang Thi Nhu, Dist.1, Ho Chi Minh City Mr. Tran Duc Vuong (Sales)

p.844. 747.4889 f.844.747.4886

shb@celliersvn.com bdm@celliersvn.com

p.848.3290.7306 vuongbms@yahoo.com f.848.3290.7307

Mr. Nguyen The Tien (Director)

p.848.3810.1941 dathaco@tlnet.com.vn f.848.3811.6244

Mr. Phi Hong Tien p.848.3836.8810 (Director)

Mr. Quan Xuan Hieu (Chairman)

p.848.3903.7729 f.848.3899.0342

Mr. Huynh Van p.848.3914.2215 huynhthien@hcm.vnn.vn Thien (Chairman, f.848.3914.2216 finewines@hcm.vnn.vn CEO)